MDEX Madison Technologies Inc (CE)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2022

Note 1 Nature of Operations

Our Company was incorporated on June 15, 1998 in the State of Nevada, USA and our common shares are publicly traded on the OTC Markets OTCQB.

We, through our wholly-owned subsidiary, Sovryn Holdings, Inc. (“Sovryn”) acquired three un-affiliated Class A/LPTV TV. Each licensed TV station can broadcast between 10 and 12 channels over-the-air, 24 hours per day/7 days per week. In 2021, we generated revenue by leasing channels to third parties on KNLA/KNET, a Class A television station in Los Angeles, KVVV, a low power television station in Houston and KYMU-LD, a low power television station in Seattle.

On November 15, 2021, we sold our wholly owned subsidiary, CZJ License Inc. for $250,000.

During August 2021, our shareholders approved to amend and restate our Articles of Incorporation to increase our authorized common stock from 500,000,000 shares to 6,000,000,000 shares.

Note 2 Going Concern

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. For the year ended December 31, 2021, we incurred a net loss of $14,262,579 and had a working capital deficit and an accumulated deficit of $4,373,271 and $15,747,021, respectively, at December 31, 2021. We have not yet made the $0.4 million interest payments on the Notes held by Arena Partners LP that were due on April 1, 2022 and July 1, 2022, and we are currently in discussions with Arena Capital LP on a plan of forbearance. It is management’s opinion that these matters raise substantial doubt about our ability to continue as a going concern for a period of twelve months from the issuance date of this report. Our ability to continue as a going concern is dependent upon management’s ability to obtain a plan of forbearance, further implement our business plan and raise additional capital as needed from the sales of stock or debt. The accompanying consolidated financial statements do not include any adjustments that might be required should we be unable to continue as a going concern.

Note 3 Summary of Significant Accounting Policies

Use of estimates

The preparation of the consolidated interim financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates.

Consolidation

The accompanying consolidated financial statements include the accounts of our wholly owned subsidiaries, Sovryn Holdings Inc. and CZJ License Inc. CZJ License Inc. was consolidated up until it was sold on November 15, 2021. All the intercompany balances and transactions have been eliminated in the consolidation. During the year ended December 31, 2021, the operations of CZJ License Inc. were consolidated into our operation and were designated as discontinued.

Interim Reporting

While the information presented in the accompanying interim three month financial statements is unaudited, it includes all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim financial statements follow the same accounting policies and methods of their application as the Company’s December 31, 2021 annual financial statements. All adjustments are of a normal recurring nature. It is suggested that these interim financial statements be read in conjunction with the Company’s December 31, 2021 annual financial statements. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that can be expected for the year ended December 31, 2022.

Segment reporting

We use “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by our chief operating decision maker for making operating decisions and assessing performance as the source for determining our reportable segments. Our chief operating decision maker is our chief executive officer, who reviews operating results to make decisions about allocating resources and assessing our entire performance. We did not report any segment information since we primarily generates sales from its television stations.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Revenue recognition

We adopted the ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). We recognize revenue when we transfer promised services to the customer. The performance obligation is the monthly services rendered. We have one main revenue source which is leasing of television station channels. Accordingly, we recognize revenue when services are provided as time passes the customers have access to utilize the channel. These revenues are billed in advance, arrears and/or are prepaid. The performance obligation is the monthly services rendered. At the moment, we have one main revenue source which is leasing of television channels. Where there is a leasing contract for channels, we bill monthly for our services as rendered. Where there is no contract, the revenue is recognized as provided.

We recognize revenue in accordance with ASC 606 using the following 5 steps to identify revenues:

Advances from Client’s deposits are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or refund the amount received. Where possible, we obtain retainers to lessen our risk of non-payment by our customers. Advances from Client’s deposits are recognized as revenue as we meet specified performance obligations as detailed in the contract.

Accounts receivables

Trade accounts receivable are stated at the amount we expect to collect. Management considers the following factors when determining the collectability of specific customer accounts: customer credit worthiness, past transaction history, current economic industry trends and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. Based on the management’s assessment, we provide for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after we have used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. As of March 31, 2022, our allowance for doubtful accounts receivable was $31,500.

Operating leases

In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”). The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For leases with an initial term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the term of the lease. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We adopted the new standard April 19, 2021. We have elected not to recognize lease assets and lease liabilities for leases with an initial term of 12 months or less.

Intangible assets

Intangible assets are non-monetary identifiable assets, controlled by us that will produce future economic benefits, based on reasonable and supportable assumptions about conditions that will exist over the life of the asset. An intangible asset that does not meet these attributes will be recognized as an expense when it is incurred. Intangible assets that do, are capitalized and initially measured at cost. Those with a determinable life will be amortized on a systematic basis over their future economic life. Those with an indefinite useful life shall not be amortized until its useful life is determined to be longer indefinite. An intangible asset subject to amortization shall be periodically reviewed for impairment. A recoverability test will be performed and, if applicable, unscheduled amortization is considered.

License agreements have been capitalized, recorded at cost and amortized over the life of the contracts. They will be amortized over the life of the license to which it supports.

Equipment

Equipment represents purchases made for assets, whose useful life was determined to be greater than one year. The assets are initially recorded at cost and depreciated over their estimated useful lives.

Website development costs

We recognized the costs associated with developing a website in accordance with ASC 350-50 “Website Development Cost”. The website development costs are divided into three stages, planning, development and production. The development stage can further be classified as application and infrastructure development, graphics development and content development. In short, website development cost for internal use should be capitalized except content input and data conversion costs in content development stage.

Costs associated with the website consist primarily of website development costs paid to third party. These capitalized costs will be amortized based on their estimated useful life over three years upon the website becoming operational. Internal costs related to the development of website content will be charged to operations as incurred. Website development costs related to the customers are charged to cost of sales.

Impairment of Long-Lived Assets

In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment and intangible assets we hold and use are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

Concentration of credit risk

We place our cash and cash equivalents with a high credit quality financial institution. We maintain United States Dollars. We minimize its credit risks associated with cash by periodically evaluating the credit quality of its primary financial institution.

Financial instruments

Our financial instruments consist principally of cash, accounts payable, accrued liabilities and notes payable. The carrying amounts of such financial instruments in the accompanying financial statements approximate their fair values due to their relatively short-term nature or the underlying terms are consistent with market terms. It is the management’s opinion that we are not exposed to any significant currency or credit risks arising from these financial instruments.

Fair value measurements

We follow the guidelines in ASC Topic 820 “Fair Value Measurements and Disclosures”. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. All financial instruments approximate their fair value.

Convertible Notes with Fixed Rate Conversion Options

We may enter into convertible notes, some of which contain, predominantly, fixed rate conversion features, whereby the outstanding principal and accrued interest may be converted by the holder, into common shares at a fixed discount to the market price of the common stock at the time of conversion. This results in a fair value of the convertible note being equal to a fixed monetary amount. We record the convertible note liability at its fixed monetary amount by measuring and recording a premium, as applicable, on the Note date with a charge to interest expense in accordance with ASC 480 - “Distinguishing Liabilities from Equity”.

Derivative Liabilities

We have certain financial instruments that are derivatives or contain embedded derivatives. We evaluate all our financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 810-10-05-4 and 815-40. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with us, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on extinguishment.

Loss per share

Net Loss Per Share

Basic loss per share is calculated by dividing the loss attributable to stockholders by the weighted-average number of shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in our earnings (loss). Diluted loss per share is computed by dividing the loss available to stockholders by the weighted average number of shares outstanding for the period and dilutive potential shares outstanding unless such dilutive potential shares would result in anti-dilution. As of March 31, 2022, no options were outstanding and 203,673,016 warrants were outstanding and exercisable. Additionally, as of March 31, 2022, the outstanding principal balance, including accrued interest of the third-party convertible debt, totaled $19,383,713 and was convertible into 951,018,661 shares of Common Stock. We issued shares of Preferred Stock that may be converted into our Common Stock. Of the outstanding shares of Preferred Stock as of March 31, 2022, Series D Preferred Stock was convertible into 155,000,000 Common shares, Series E-1 Preferred Stock was convertible into 1,152,500,000 Common shares and Series H Preferred Stock was convertible into 39,895,000 Common shares. The total potentially dilutive shares calculated are 1546,763,946. It should be noted that contractually the limitations on the third-party notes (and the related warrants) limit the number of shares converted to either 4.99% or 9.99% of the then outstanding shares. As of March 31, 2022, and 2021, potentially dilutive securities consisted of the following:

Business Combinations

In accordance with ASC 805-10, “Business Combinations”, we account for all business combinations using the acquisition method of accounting. Under this method, assets and liabilities, including any remaining non-controlling interests, are recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and non-controlling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or non-controlling interests made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that we hold in the acquired company prior to the acquisition is re-measured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and the existing book value. Results of operations of the acquired entity are included in our results from the date of the acquisition onward and include amortization expense arising from acquired tangible and intangible assets.

Credit losses

In June 2016, the FASB issued ASU 326, “Financial Instruments – Credit Losses”. The ASU sets forth a “current expected credit loss” (CECL) model which requires us to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Recently, the FASB issued the final ASU to delay adoption for smaller reporting companies to calendar year 2023. We are currently assessing the impact of the adoption of this ASU on its financial statements.

Related Party Transactions

We follow FASB ASC subtopic 850-10, “Related Party Transactions”, for the identification of related parties and disclosure of related party transactions.

Pursuant to ASC 850-10-20, related parties include: a) our affiliates; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of management; d) our principal owners; e) our management; f) other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

Material related party transactions are required to be disclosed in the consolidated financial statements, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which statements of operation are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which statements of operations are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Discontinued operations

Discontinued operations are components of an entity that either have been disposed or abandoned or is classified as held for sale. Additionally, in order to qualify as a discontinued operation, the disposal or abandonment must represent a strategic shift that has or will have a major effect on an entity’s operations and financial results.

Income taxes

We follow the guideline under ASC Topic 740 Income Taxes. “Accounting for Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Due to the uncertainty regarding our future profitability, the future tax benefits of its losses have been fully reserved.

Recently Issued Accounting Pronouncements

We adopt new pronouncements relating to generally accepted accounting principles applicable to us as they are issued, which may be in advance of their effective date.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this new guidance will have on its financial statements

We do not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements. 

On September 9, 2021, we entered into a secured promissory note with Top Dog Productions Inc. We agreed to lend an aggregate principal sum of up to $2,000,000 that accrues at a rate of 5% per annum. The note receivable and all accrued interest is due on September 9, 2022. The principal and interest amount of the note may be prepaid in whole or in part at any time, without penalty nor premium. Accrued interest is $11,526 at March 31, 2022.

On November 15, 2021, we entered into a $250,000 convertible promissory note with ZA Group Inc. for the sale of its wholly owned subsidiary, CZJ License Inc. The note accrues at a rate of 5% per annum. The principal and accrued interest of the note receivable will be due and payable on November 5, 2023. At any time after 180 days following the date of the note receivable, we may convert all or any part of the outstanding and unpaid amount of the note into fully paid and non-assessable shares of common stock of ZA Group Inc. at a fixed conversion price of $0.005 per share. Accrued interest is $4,666 at March 31, 2022.

Note 5 -Intangible Assets

Our Federal Communication Commission Licenses (“FCC”) and domain name are considered indefinite-lived intangible assets that are not amortized, but instead are tested at least annually for impairment. The Market Advantage intangible asset is being amortized on a straight-line basis over 94 months from the acquisition date. Amortization expense for the three months ended March 31, 2022 and 2021 was $6,260 and $0, respectively.

Future amortization expense of the intangible assets is as follows:

 Schedule of Future Amortization Expenses of Intangible Assets

Note 6 Goodwill

As of March 31, 2022, we carry goodwill for the following television station asset purchases made in 2021:

Depreciation expense was $53,718 and $0 for the three months ended March 31, 2022 and 2021, respectively.

Note 8 Right of Use Assets

We have six operating leases ranging from a period of 80 months to a period of 332 months. The annual interest rate used was 15%. As at March 31, 2022, the remaining right of use assets are as follows:

The remaining lease liability at March 31, 2022 was $1,468,233. The current portion of the lease liability was $0 and the non-current portion of the lease liability was $1,468,233.

Note 10 Securities Exchange Agreements

Sovryn Holdings, Inc.

We entered into a Securities Exchange Agreement on February 16, 2021 with Sovryn, a Delaware corporation and acquired 100% of the shares of Sovryn in exchange for i) 100 shares of our Series B Preferred Stock to be transferred by Jeffrey Canouse, our CEO at the time, to a designee of Sovryn and ii) 1,000 shares of Series E Preferred Stock. Upon the effectiveness of an amendment to out Articles of Incorporation to increase our authorized common stock, from par value $0.001 to par value $0.0001 per share, from 500,000,000 shares to 6,000,000,000 shares, all shares of Series E Preferred Stock issued to the shareholders shall automatically convert into approximately 2,305,000,000 shares of our Common Stock. The Series E Preferred Stock votes on an as-converted basis with our Common Stock prior to their conversion. The Series E Preferred Stock represented approximately 59% of the fully diluted shares of our Common Stock after the closing of the transactions contemplated by the Securities Purchase Agreement. The valuation for the Preferred Series E shares was determined to be $4,225,062 based on the market value of our shares we exchanged at the date the transaction. The transaction was recorded as an asset purchase and we recorded goodwill of $4,224,962 which was based on the market value of our shares exchanged at the date of the transaction.

Note 11 Asset Purchase

On April 19, 2021, pursuant to a February 17, 2021 asset purchase agreement, Sovryn paid a total of $10,182,534 to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KNET-CD and KNLA-CD Class A television stations (“the Los Angeles Stations”), certain tangible personal property, real property, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Los Angeles Stations.

The following table shows the estimated fair values of the Los Angeles Stations’ assets acquired and liabilities assumed at the April 19, 2021 purchase date:

On June 1, 2021, pursuant to a March 14, 2021 an asset purchase agreement, Sovryn paid a total of $1,500,000 to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KVVV-LD low power television station (“the Houston Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Houston Station.

On September 24, 2021, pursuant to a March 29, 2021 an asset purchase agreement, Sovryn paid a total of $1,864,920 to acquire the licenses and Federal Communications Commission (“FCC”) authorizations to the KYMU-LD low power television station (“the Seattle Station”), certain tangible personal property, certain real property leases, contracts, intangible property, files, claims and prepaid items together with certain assumed liabilities in connection with the Seattle Station.

Note 12 Note Payable

On December 28, 2021, we sold a $500,000 promissory note that bears interest at 12% per annum and matures on April 5, 2022, as amended. In connection with the note sale, we issued 500,000 Warrants that expire on December 31, 2023 and may be converted in shares of our Common Stock starting June 26, 2022 at a price of $0.025 per share. We estimate the value the Warrant to be approximately $9,000, based on a value of $0.018 per share of our Common Stock as of December 28, 2021.The promissory note is subordinate to the Notes we issued to the Investors. As of March 31, 2022, $500,000 in note principal is outstanding.

On January 14, 2022, we sold an unsecured $165,000 note payable that matures on April 5, 2022, has a $15,000 original issuance discount and $15,000 in fees that we paid and amortize over the term of the note. The obligation is subordinate to the Notes we issued to the Investors. As of March 31, 2022, $165,000 in note principal is outstanding.

On January 14, 2022, we sold an unsecured $165,000 note payable that matures on April 5, 2022, has a $15,000 original issuance discount and $15,000 in fees that we paid and amortize over the term of the note. The obligation is subordinate to the Notes we issued to the Investors. As of March 31, 2022, $165,000 in note principal is outstanding.

The Notes have a term of thirty-six months and mature on February 17, 2024, unless earlier converted. The Notes accrue interest at a rate of 11% per annum, subject to increase to 20% per annum upon default. Interest is payable in cash on a quarterly basis beginning on March 31, 2021. Notwithstanding the above, at our election, any interest payable on an applicable payment date may be paid in registered shares of our Common Stock in an amount equal (A) the amount of the interest payment due on such date, divided by (B) an amount equal to 80% of the average volume-weighted average price of our Common Stock for the five (5) days immediately preceding the date of conversion. At March 31, 2022 and December 31, 2021 accrued and unpaid interest was $825,000 and $453,750, respectively. We have not yet made the $453,750 million interest payments on the Notes held by Arena Partners LP that were due on April 1, 2022 and July 1, 2022, and we are currently in discussions with Arena Capital LP on a plan of forbearance.

On September 24, 2021, the Company and the Investors amended the Notes and related closing documents, by executing the Limited Waiver and First Amendment the closing documents (“the amendment”). The amendment also waived specified events of default. The Notes are henceforth convertible at any time, at the holder’s option, into shares of our Common Stock at a price of $0.02 per share, subject to default event adjustment. Notwithstanding the foregoing, at any time during the continuance of any Event of Default, the Conversion price in effect shall be equal to the alternate conversion price. If at any time the conversion price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the conversion price hereunder may equal such par value for such conversion and the conversion amount for such conversion may be increased to include Additional Principal, where Additional Principal means such additional amount to be added to the principal amount of this Note to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the conversion price not been adjusted by the Holder to the par value price, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The conversion price is also subject to adjustment due to certain events, including stock dividends, stock splits and in connection with our issuance of our Common Stock or common stock equivalents at an effective price per share lower than the conversion price then in effect. We may not redeem the Notes.

As part of the agreement with the Investors, we issued 192,073,017 Warrants. On September 24, 2021, we and the Investor amended the warrant agreement such that each Warrant is exercisable for a period of five (5) years from the date of issuance at an initial exercise price equal to $0.025 per share, that is adjusted to $0.020 per share when interest is paid late, subject to certain beneficial ownership limitations (with a maximum ownership limit of 9.99%). The exercise price is also subject to adjustment due to certain events, including stock dividends, stock splits and recapitalizations. The Holder may be eligible for cashless exercise.

The Series F Preferred Stock has no voting rights and shall convert into 4.9% of our issued and outstanding shares of our Common Stock on a fully diluted basis upon Common Shareholder Approval. The Series F Preferred Stock was converted and 192,073,017 common shares were issued on October 11, 2021.

The Investors have contractually agreed to restrict their ability to exercise the Warrants and convert the Notes such that the number of shares of our Common Stock held by the Investors and their affiliates after such conversion or exercise does not exceed 9.99% of our then issued and outstanding shares of Common Stock.

Note 14 Related Party

We entered into a consulting agreement with Warren Zenna of Zenna Consulting Group to provide oversight of marketing and communications services. The agreement commenced March 1, 2021 and ended on July 31, 2021. We paid Zenna Consulting Group $0 fees in the three months ended March 31, 2022 and 2021, respectively. Mr. Zenna is a member of our Board of Directors. On March 1, 2022, we granted a Warrant to Mr. Zenna to purchase up to 500,000 shares of our Common Stock at $0.025 per share, on a cashless exercise basis, at any time beginning September 1, 2022 and ending September 1, 2026. We estimate the value the Warrant to be approximately $9,000, based on the $0.018 price per share of our Common Stock on March 1, 2022.

Effective January 1, 2022, we entered into a management consulting agreement with GreenRock LLC, a company controlled by Philip Falcone, for a period of one year ending December 31, 2022, under which we provide monthly remuneration of $35,000, plus expenses in connection with his duties, responsibilities and performance as our chief executive officer. In February 2021, our subsidiary, Sovryn Holdings Inc., entered into consulting agreement with GreenRock LLC to provide us with chief executive officer services. In the three months ended March 31, 2022 and 2021, we paid GreenRock LLC $40,000 and $0 in fees, respectively. Mr. Falcone is the managing member of GreenRock LLC and is our Chief Executive Officer. We paid GreenRock LLC a $233,140 bonus for the three months ended March 31, 2022.

On April 7, 2021, we issued 1,500,000 shares of our Common Stock to Mr. Canouse in exchange for transferring his 100 shares of our Series B Preferred Stock to FFO1 Irrevocable Trust, an entity controlled by Mr. Falcone, our CEO and Chairman of our Board of Directors. The shares were valued at $1,500. The 100 shares of Series B Preferred Stock that provide a 51% voting control regardless of the number of common or other voting securities we have issued at present or at any time in the future, such that the holder of the Series B Preferred shares shall maintain majority voting control over matters voted on by our shareholders. FFO1 Irrevocable Trust also holds 461,000 Preferred Series E-1 shares and FFO2 Irrevocable Trust holds 461,000 Preferred Series E-1 shares. Lisa Falcone, wife of Mr. Falcone, is the trustee of FFO2 Irrevocable Trust and Ms. Falcone has shared voting and dispositive power.

Note 15 Mezzanine Equity

We account for certain of our Preferred Stock in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Based on this guidance, preferred stock that is conditionally redeemable is classified as temporary or “mezzanine” equity. Accordingly, the various Series of Preferred Stock, which is subject to conditional redemption, is presented at redemption value as mezzanine equity outside of the stockholders’ equity section of the consolidated balance sheets

Preferred Shares

Series A Preferred Stock

On February 16, 2021, we cancelled all the Preferred Series A shares. In exchange, the holders of Series A Preferred shares received one-year option agreements to purchase shares of our wholly owned subsidiary at the time, CZJ License, Inc. at $10 per share for up to 300,000 shares. The option agreement expired without being exercised.

Series C Preferred Stock

There are 10,000 designated and authorized Series C Preferred Stock. Holders of Series C Preferred Stock shall be entitled to receive, when and as declared, dividends equal to 2% per annum on the stated value, payable in additional shares of Series C Preferred Stock. As of March 31, 2022 and December 31, 2021, no shares of Series C Preferred Stock are outstanding.

Series D Preferred Stock

There are 230,000 designated and authorized Series D Preferred Stock with a 4.99% conversion cap which may be increased to a maximum of 9.99% by holder by written notice to us. There is a stated value of $3.32 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the date which the Series D are issued. Series D are ranked as a Senior Preferred Stock and have no voting rights. Each share of Series D Preferred Stock may be converted to 1,000 common shares.

On February 16, 2021, we settled $1,028,000 in note payables, convertible notes payable and accrued interest for 230,000 shares of our Series D Preferred Stock, of which 75,000 shares of Series D Preferred Stock were converted into 75,000,000 shares of our Common Stock and 155,000 Series D Preferred shares remain unconverted and outstanding as of March 31, 2022 and December 31, 2021.

Series E Preferred Stock

On February 16, 2021, we issued 1,000 shares of Series E Preferred Stock to acquire Sovryn that we valued at $4,225,062 based on value of 100% of our Common Stock at the time.

On September 16, 2021, the holders of our Series E Preferred Stock entered into an Exchange Agreement with us whereby on October 11, 2021, the 1,000 Series E Preferred shares were exchanged for 1,152,500 Series E-1 Preferred shares and 1,091,388,889 shares of Common Stock. We valued the exchange at the same $4,225,062 value as was assigned to the 1,000 shares of Series E Preferred Stock. As of March 31, 2022 and December 31, 2021, no shares of Series E Preferred Stock are outstanding.

Series E-1 Preferred Stock

There are 1,152,500 designated and authorized Series E-1 Preferred Stock that we issued on October 11, 2021 in exchange for our Series E Preferred Stock. At March 31, 2022 and December 31, 2021, 1,152,500 Preferred Series E-1 shares remain outstanding. Each share of Series E-1 Preferred Stock may be converted to 1,000 common shares.

Series F Preferred Stock

There are 1,000 designated and authorized Series F Preferred Stock. On February 17, 2021, we issued the Investors 1,000 shares of Series F Preferred Stock that convert into 192,073,017 shares of Common Stock, which we valued at $864,000, based on the underlying value of shares our Common Stock that were $0.0045 per share at the time. On October 11, 2021, the 1,000 shares of Series F Preferred Stock were converted into 192,073,017 shares of Common Stock. As of March 31, 2022 and December 31, 2021, no shares of Series F Preferred Stock are outstanding.

Series G Preferred Stock

We received $4,600,000 in subscriptions for 4,600 of Series G Preferred Shares that we valued at $1,000 per share based on the cash price. On November 2, 2021, all of the 4,600 authorized and issued shares of Series G Preferred Stock were converted into 255,555,556 shares of our Common Stock. At March 31, 2022 and December 31, 2021, no shares of Series G Preferred Stock are outstanding.

Series H Preferred Stock

On November 11, 2021, pursuant to an Exchange Agreement that we entered into with the Investors, 39,895,000 of our Common shares held by the Investors were exchanged for 39,895 shares of our Series H Preferred Stock and we cancelled the 39,895,000 Common shares. Each share of Series H Preferred Stock may be converted to 1,000 common shares, subject to a maximum ownership limit of 9.99%. We valued the 39,895,000 Common shares and 39,895 Series H Preferred shares at $3,989,500. At March 31, 2022 and December 31, 2021, 39,895 shares of Series H Preferred Stock remain outstanding.

Note 16 Shareholders’ Equity

Preferred Stock

As of March 31, 2022 and December 31, 2021, we are authorized to issue 50,000,000 shares of $0.001 par value Preferred Stock, with designations, voting, and other rights and preferences to be determined by our Board of Directors of which 48,617,400 remain available for designation and issuance.

Series B Preferred Stock

There are 100 designated and authorized Series B Preferred Stock. Holders of Series B Preferred Stock have the right to vote on all shareholder matters equal to 51% of the total vote of Common stockholders. The Series B Preferred Stockholder is entitled to 51% voting rights regardless of the number of common shares or other voting shares issued by the company at any time. Such provision grants the holder of Series B Preferred Stock majority control of us, unless otherwise canceled.

On July 17, 2020, 100 Series B Preferred Stock were issued pursuant to the License Agreement. The Series B Preferred Stock was valued at par at $0.001. Although the Series B Preferred Stock is entitled to 51% voting rights as described above, the stock has no dividend rate nor conversion feature. Furthermore, the shares were not issued to the investors, but rather were granted to new unrelated management.

On February 17, 2021, the 100 Series B Preferred Stock were transferred from Mr. Canouse (our former director and CEO), to FFO1 Irrevocable Trust, a company Mr. Falcone (our director and CEO) is the trustee and has the voting and dispositive power.

At March 31, 2022 and December 31, 2021, there were 100 Series B Preferred shares outstanding, respectively.

Common Stock

In August 14, 2021, our shareholders approved an increase in authorized Common Stock to 6,000,000,000 from 1,000,000,000, which became effective the same day. As of March 31, 2022 and December 31, 2021 there were 1,599,095,027, and 1,599,095,027, shares outstanding, respectively.

Our Board of Directors and majority stockholder approved the decision to not move forward with a reverse stock split ratio of 25 to 1 share, and approved a reverse stock split ratio from 10 to 1 share, which is currently subject to regulatory approval.

Warrants

On February 17, 2021, we issued 192,073,017 Warrants to Arena Investors that are exercisable for a five-year period from the date of issuance and, based on an amendment made on September 24, 2021, the Warrants may be converted into our Common Stock at $0.02 per share, subject to a maximum ownership limit of 9.99%. The exercise price is subject to adjustment due to stock dividends, stock splits and recapitalizations and other events. We valued the Warrants at $864,000 based on a value of $0.0045 per share for our Common Stock at the time.

On December 28, 2021, we entered into a promissory note payable and provided 500,000 Warrants. Each Warrant is exercisable at $0.025 per share and expires on December 31, 2023. We valued the Warrants at $9,000 based on a value of $0.018 per share for our Common Stock at the time.

The Warrants issued are loan incentives. The value was allocated to the warrants based on fair value on the date of the grant as determined using the Black-Scholes option pricing model.

Note 17 Discontinued Operations

On February 16, 2021, we cancelled all the Series A Preferred Stock shares and offered their holder’s option agreements to purchase up to 300,000 shares of CZJ License, Inc., our wholly owned subsidiary at the time, at an option price of $10 per share. The option agreements are exercisable for a period of one year from the date of issuance and were not exercised.

On November 15, 2021, we entered into a Purchase and Sale agreement with ZA Group Inc. to sell CZJ License Inc. for $250,000. At Closing, the ZA Group Inc. delivered a convertible promissory note with a principal amount equal to the purchase price. The interest rate on the note was 5% per annum and matures on November 5, 2023. The note may be converted, from time to time, after 180 days from the issuance date of the note into common stock of ZA Group Inc., at a fixed conversion price of $0.005 per share, subject to a beneficiary ownership limitation of not more than 4.99% of the outstanding shares of common stock of ZA Group Inc.

At November 15, 2021, CZJ License Inc.’s accounts were eliminated from the consolidated financial statements. All expenses incurred by CZJ License Inc. up to November 15, 2021 have been disclosed as discontinued operations. The previous year’s assets, liabilities and expenses have been similarly classified for comparative purposes.

Note 18 Commitments

On September 28, 2020, we entered into a one-year renewable employment agreement with Mr. Canouse, our Chief Executive Officer at the time. In the three months ended March 31, 2022 and 2021, Mr. Canouse received $24,487 and $0, respectively. Mr. Canouse resigned on July 1, 2022.

On February 17, 2021, we sold the Investors $16,500,000 of Notes and we entered into a Security Agreement and a Guaranty Agreement with the Investors that secure the Notes with liens on all of our tangible and intangible assets. We have not yet made the $0.4 million interest payments on the Notes held by Arena Partners LC that were due on April 1, 2022 and July 1, 2022, and as a result, under the Note terms, the interest rate is 20.0% per annum. We are currently in discussions with the Investors on a plan of forbearance; however, there is no assurance that we will be successful in completion of a plan, which may disrupt our operations and result in a restructuring of obligations.

On October 20, 2021, we entered into a Stock Acquisition Agreement with Top Dog Productions Inc., Jay Blumefield and Anthony Marsh whereby we will acquire all of the shares of Top Dog Productions Inc., and in exchange, we will pay the purchase price of $10,000,000 in shares of our Common Stock. The number of shares of Common Stock to be issued will be subject to a “collar”, with a minimum number of 16,666,667 shares in the event that the closing bid and ask price before the Closing for our is $0.60 or greater, and a maximum number of 25,000,000 shares in the event that the closing bid and ask price before the Closing for our stock is $0.40 or less, with ratable adjustments for a Closing Price between $0.40 and $0.60. The Closing is subject to receipt of audited and other financial statements of Top Dog Productions, other deliverables, and terms and conditions. This agreement is also subject to standard termination provisions including if the Closing had not occurred within 60 days of the execution of the Agreement. As of March 31, 2022, the agreement has not closed.

On January 12, 2022, we entered into a consulting agreement with EF Hutton as a lead underwriter. The agreement is for one year and we may terminate the agreement on or after 270^th day with 30-days written notice. EF Hutton may terminate the agreement on or after 120 days from execution of the agreement. EF Hutton agrees to provide underwriting the sale of up to $20 million of securities. In return, we grant EF Hutton an option to acquire up to 15% of the total number of securities we offer , provide an underwriting discount of 7% of the total gross proceeds, provide warrants equal to 5% of the aggregate number of shares of Common Stock sold in the offering, warrants to be exercisable at any time in whole or in part for 4 ½ years commencing 6 months from the effective date of offering at a price per share equal to 100% of the public offering price per security. EF Hutton may also provide advisory services for a cash fee of 7% of capital raised for equity placements, 6% for debt placements, closing warrants equal to 3% of aggregate proceeds sold in offering with the warrants to expire in 5 years. We agree to pay expenses for marketing, promotional materials and other costs associated with the work.

In January 2022, we entered into a six-month consulting agreement with a third party to provide strategic and business services relating to the blockchain project that we amended in February 2022. The first two months are payable at $25,000 per month and the remaining four months are payable at $10,000 per month. We have paid $25,000 to date.

In February 2022, we entered into a consulting agreement to establish, launch, manage, operate and produce a 24/7 broadcast network devoted to cryptocurrency, NFT, Web3 and blockchain technology. In consideration for the wide range and scope of work, we agreed to pay the consultant a fee in the aggregate of $600,000, of which $450,000 has been paid and $150,000 is payable upon the launch of the network.

In February 2022, we entered into a consulting agreement with a third party to provide corporate marketing strategy, creation and development of content for distribution, market development, communications, products and growth. The agreement ends the earlier of June 30, 2022 or when an executed Employment Agreement is signed with us. Upon execution of the consulting agreement, we paid the consultant $100,000 and we are obligated to pay a service fee $30,000 per month for March through June. As part of the arrangement, we granted the consultant a Warrant to acquire up to 160,000,000 shares of our Common Stock at an exercise price of $0.025 per share that is contingent upon our entering into an Employment Agreement or extending the consulting agreement, which did not occur. As of the date of this report, we paid $160,000.

In March 2022, we entered into a six-month service agreement for press releases, campaigns and social media advertisings. The service fee is $30,000 per month plus expenses. The agreement may not be terminated during the initial six months and we must provide no less than 30-day prior written notice to the termination.

As of March 31, 2022 and December 31, 2021 the tax effect of the temporary timing differences that give rise to significant components of deferred income tax asset are noted below. A valuation allowance has been recorded as management believes it is more likely than not that the deferred income tax asset will not be realized.

Tax losses of approximately $14 million will expire in 2040